UPDATED: Ofcom cuts proposed hike in 2G, 3G spectrum fees

UK regulator Ofcom scaled back plans to increase fees for 2G and 3G spectrum use, a move that was previously described by analysts as a tax of £4.5 billion (€5.6 billion/$7.5 billion) on the UK mobile industry over 20 years.

The regulator revealed on Friday that it has revised its proposal to £109.3 million per year for 900 MHz spectrum and £137.5 million for 1800 MHz spectrum. The previous proposal in January this year had suggested £138.5 million for 900 MHz spectrum and £170.4 million for 1800 MHz spectrum.

Vodafone UK, Telefónica UK, EE and 3 UK currently pay a combined total of £24.8 million per year for 900 MHz spectrum and £39.7 million for 1800 MHz spectrum.

Current and proposed total annual licence fees for 900 MHz and 1800 MHz spectrum

* EE and H3G figures relate to holdings after EE's divestment of 1800 MHz spectrum to H3G, to be completed in Oct. 2015.
** These revised proposals use the Consumer Price Index as the inflation index to calculate annual licence fees, whereas the figures proposed in October 2013 used the Retail Price Index. Ofcom consulted in April 2014 on changing the inflation index.

Ofcom said it planned to carry out a new consultation on the revised fees. The consultation deadline closes on Sept. 26, and the new licence fees are likely to come into effect in 2015.

"We expected substantial responses to our initial proposals, which are based on complex analysis. We've listened carefully to the arguments and evidence put forward during the consultation, which has helped refine our proposals," said Philip Marnick, group director of Ofcom's Spectrum Group.

The original fees came in for harsh criticism from UK operators, which said the extra charges would hurt their efforts to build new LTE networks.

With regard to the latest proposal, Vodafone said it is reviewing the new consultation document and will continue to talk with Ofcom. "We're not adding anything at this stage," a spokesman for the company said.

Telefónica's O2 UK said in a statement emailed to FierceWireless:Europe: "We welcome Ofcom's decision to consult (for 900 MHz and 1800 MHz spectrum licence fees). Previous fee proposals would have hampered industry investment and put pressure on retail prices, to the detriment of mobile phone customers. We'll read through the revised proposals over the coming weeks."

Also in an emailed statement, 3 UK said: "We are still reviewing Ofcom's proposals but the new consultation goes some way to bringing proposed fees for 1800MHz spectrum closer to its real value. We will continue to work with Ofcom to develop a license fee process which reflects the true value of different frequencies of spectrum."

Meanwhile EE said Ofcom's new annual licence fees proposals for 1800 MHz spectrum "remain unjustifiably high at three and a half times current levels. They fail to adequately address the impact of significantly higher licence fees on investment in mobile networks and on consumer pricing. The proposals are out of touch with the consumer appetite for mobile coverage in even more places across the UK."

When it first outlined the original fees in January, Ofcom said it had acted on instructions from the UK government to charge the mobile operators "full market value" for the 2G spectrum they have been using for many years, despite there being no liquid market for the spectrum

In January, Enders Analysis said Ofcom's general approach to "such an imponderable question" was eminently sensible, but the company disagreed with the detail of the regulator's methodology on three key aspects, "which makes the current proposed charges over three times too high in our view, effectively charging the industry a one-off tax of £4.5 billion," the company observed.

For more:
- see this Ofcom release

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Article updated Aug. 1 at 4.15pm CET to add in EE's statement.